Your financial portfolio helps you reach your financial goals , and as an investor it is imperative to review and rebalance it periodically.
Like every other dictum, this too is more than often ignored which can be a major setback in achieving your financial goals .
The purpose of a review and rebalance is carried out to keep your investments from drifting away from the financial target you initially set.
Additionally, changes in market lead to a dip or rise in the value of your assets thereby making your portfolio too risky or conservative. Not staying updated in a scenario like this puts you in a disadvantage.
Or in another scenario, you might have chosen to change your financial goals.
Be it all three of the above, it is necessary to reassess your asset allocation, keep it in sync with your risk profile, ensure enhancement of your investment to keep up with increase in renumeration and weed out sectors and funds that are detrimental to your financial goals .
Further, you can carry out your portfolio review by even studying the historical returns of your assets and comparing it with the returns of benchmark indices over the same period of time.
"Ideally this exercise should be conducted every 6-9 months," says Deepak Jasani, Head - Retail Research, HDFC securities.
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Observing economic trends
"One has to study the trends of interest rate moves during the period, inflation rate and returns generated in equity markets and other financial instruments," says Jasani adding that investors need to be watchfull of the new instruments being introduced in the markets as well.
Harsh Gahlaut, Co-founder & CEO, FinEdge advices investors not to tweak with their portfolio in the short-run. As tempting it may be to change course often, this may be more harmful.
However, structural macroeconomic events warrant a review of your portfolio. According to Gahlaut, here are examples for such events:
1. Drastic change in long term economic outlook (war, sovereign rating change, political uncertainty, government's ability to maintain fiscal prudence, etc.)
2) Long term change in trends related to inflation, interest rates, credit ratings, among others, for debt investments.
3) Valuation indicators such as Price to Earnings ratio and Price to Book Value to arrive at ideal asset allocation for equity investments.
Finally, Jasani also highlights that one should keep track of post tax returns.
This requires holding different asset classes for different periods as prescribed in the Income Tax Act.
"This period needs to be kept in mind while taking investment decisions as different asset classes undergo different cycles and it is important to enter at the right time in the cycle so as to also benefit out of the holding period necessary to qualify for LTCG and its beneficial tax treatment," says Jasani.
Financial goals are an important subset of an individual's life and therefore if a disciplined review is not maintained, it will lead to huge divergence which can become a personal liability in the long-run.